India offers enhanced access to eight sectors

Finance Minister Nirmala Sitharaman on May 16 announced structural reforms in eight sectors - Coal, Minerals, Defence Manufacturing, Civil Aviation, Power Sector, Social Infrastructure, Space and Atomic energy - that will open up avenues for enhanced trade and investment activities

May 17, 2020

Reforms worth nearly Rs.21 trillion (US$277 billion) is equivalent of 10% of India’s GDP

FDI limit in Defence manufacturing under automatic route to be raised from 49% to 74%

500 mining blocks in India to be offered through an open and transparent auction process

Private players to be allowed to use ISRO facilities and other assets to improve capacities

The Government of India has launched an extensive reform and relief programme to prepare the country for the post-Coronavirus world. A vast set of measures announced over May 12-17 will seek to empower the citizens who have been socially and economically hurt by the pandemic and offer new trade and investment opportunities through enhanced liberalisation and policy amendments. The measures cover reforms in the financial system; easing of regulations, compliances and FDI limitation; updation of labour codes, among other key components of the trade and investment ecosystem. The Government also laid out a plan to modernise infrastructure and invest in skill development to prepare for opportunities in the post-Coronavirus economy. The reforms, Prime Minister Narendra Modi said, will help imbibe the spirit of ‘self-reliance’ in India, striking a balance between Human-centric and Economy-centric Globalisation.

Under the mission to make India self-reliant, the demand-supply ecosystem will be harnessed to its full potential. To increase demand and to meet that demand, the new reforms will empower every stakeholder in the supply chain with skill development, credit facilities, infrastructure, access to market, favourable policies, among other capabilities. Apart from aiding large investors from the world over, the reforms will help produce job creators, instead of just jobs. COVID-19 is anticipated to bring fundamental changes in the world economic order. Herein, the Government’s measures will help build an inclusive and futuristic economy, ensuring that the 21st century belongs to India. The reforms with a cumulative valuation of nearly Rs.21 trillion (US$277 billion), equivalent of about 10 per cent of India’s GDP, will boost confidence following a pandemic that is expected to cost the global economy up to US$8.8 trillion. 

The reforms with a cumulative valuation of nearly Rs.21 trillion (US$277 billion), equivalent of about 10 per cent of India’s GDP, will boost confidence following a pandemic that is expected to cost the global economy up to US$8.8 trillion.

Starting on the reform journey, on May 16, Finance Minister Nirmala Sitharaman announced structural reforms in eight industries – Coal, Minerals, Defence Manufacturing, Civil Aviation, Power Sector, Space, Atomic energy, and Social Infrastructure – that will open up avenues for enhanced trade/investment activities. The sector-specific reforms are explained below:

Opportunities in Coal

  1. Commercial Mining in Coal Sector – The Government will introduce competition, transparency, and private sector participation in the Coal sector through:
    1. A revenue sharing mechanism instead of a regime of fixed Rupee/tonne structure to be operationalised. Any party can bid for a coal block and sell it in the open market.
    2. Entry forms to be liberalised. Nearly 50 Blocks to be offered immediately. There will not be any eligibility conditions, only upfront payment with a ceiling to be provided.
    3. There will be an exploration-cum-production regime for partially explored blocks against the auction of fully explored coal blocks, allowing private sector participation in exploration.
    4. Production earlier than scheduled to be incentivized through rebate in revenue-share.
  2. Diversified Opportunities in Coal Sector
    1. Coal Gasification/Liquefaction to be incentivised through rebate in revenue share. This will lead to a lower environmental impact, helping India switch to a gas-based economy.
    2. Infrastructure development of Rs.500 billion will be done for the evacuation of enhanced Coal India Ltd’s (CIL) target of 1 billion tonnes of coal production by 2023-24, plus coal production from private blocks. This will include Rs.180 billion worth of investment in mechanised transfer of coal (conveyor belts) from mines to railway sidings.
  3. Liberalised Regime in Coal Sector
    1. Coal Bed Methane (CBM) extraction rights to be auctioned from CIL’s coal mines.
    2. Ease of Doing Business measures, such as Mining Plan simplification, will allow for an automatic 40 per cent increase in annual production.
    3. Concessions in commercial terms given to CIL’s consumers (relief worth Rs.500 billion). Reserve price in auctions for non-power consumers reduced, credit terms eased, and lifting period has been enhanced.

Opportunities in Minerals

  1. Enhancing Private Investments in Minerals – Structural reforms will boost growth, employment, and bring in state-of-the-art technology especially in exploration through:
    1. Introduction of a seamless composite exploration-cum-mining-cum-production regime.
    2. 500 mining blocks to be offered through an open and transparent auction process.
    3. Joint Auction of Bauxite and Coal mineral blocks to enhance the Aluminum Industry’s competitiveness will be introduced to help the Aluminum industry reduce electricity costs.
  2. Policy reforms in the Mineral Sector
    1. The distinction between captive and non-captive mines will be removed to allow the transfer of mining leases and the sale of surplus unused minerals, leading to better efficiency in mining and production. 
    2. The Ministry of Mines is developing a Mineral Index for different minerals. 
    3. There will be a rationalisation of stamp duty payable while awarding mining leases.

Opportunities in Defence Manufacturing

  1. Enhancing Self Reliance in Defence Production
    1. ‘Make in India’ in defence production to be promoted by notifying a list of weapons/platforms for import ban with year-wise timelines, indigenisation of imported spares, and separate budget provisioning for domestic capital procurement. This will help reduce the defence import bill.
    2. Improved autonomy, accountability, and efficiency in Ordnance Supplies by corporatisation of Ordnance Factory Board.
  2. Policy Reforms in Defence Production
    1. FDI limit in the Defence manufacturing under automatic route to be raised from 49 per cent to 74 per cent.
    2. The time-bound defence procurement process and faster decision making will be ushered in by setting up a Project Management Unit (PMU) to support contract management; the Realistic setting of General Staff Qualitative Requirements (GSQRs) of weapons/platforms and overhauling Trial and Testing procedures.

Opportunities in Civil Aviation 

  1. Efficient Airspace Management for Civil Aviation
    Restrictions on the utilisation of Indian Air Space will be eased so that civilian flying becomes more efficient. This will bring a total benefit of about Rs.10 billion per year for the aviation sector. This will lead to optimal utilization of airspace; reduction in fuel use, time and will have a positive environmental impact.
  2. More World-Class Airports through PPP
    Six more airports have been identified for the 2nd round bidding for operation and maintenance on Public-Private Partnership (PPP) basis. Additional Investment by private players in 12 airports in 1st and 2nd rounds is expected to bring around Rs.130 billion. Another six airports will be put out for the third round of bidding.
  3. India to become a global hub for Aircraft Maintenance, Repair, and Overhaul (MRO)
    The tax regime for the MRO ecosystem has been rationalized. Aircraft component repairs and airframe maintenance to increase from Rs.8 billion to Rs.20 billion in three years. It is expected that major engine manufacturers in the world would set up engine repair facilities in India in the coming year. Convergence between the Defence sector and the civil MROs to be established to create economies of scale. This will lead to maintenance costs for airlines to come down.

Opportunities in the Power Sector

  1. Tariff Policy Reform
    1. Consumer Rights
      1. DISCOM inefficiencies not to burden consumers
      2. Standards of Service and associated penalties for DISCOMs
      3. DISCOMs to ensure adequate power; load-shedding to be penalized
    2. Promote Industry
      1. Progressive reduction in cross-subsidies
      2. Time-bound grant of open access
      3. Generation, transmission project developers to be selected competitively
    3. Sustainability of Sector
      1. No Regulatory Assets
      2. Timely payment of Gencos
      3. DBT for subsidy; Smart prepaid meters
  2. Privatization of Distribution in UTs
    Power Departments/Utilities in Union Territories to be privatised. This will lead to better service to consumers and improvement in operational and financial efficiency in Distribution. This will also provide a model for emulation by other Utilities across the country.

Opportunities in Social Infrastructure

Boosting private sector investment through a revamped viability gap funding scheme – Rs.81 billion

The Government will enhance the quantum of Viability Gap Funding (VGF) up to 30 per cent each of Total Project Cost as VGF by the Centre and State/Statutory Bodies. For other sectors, VGF’s existing support of 20 per cent each from the Government of India and States/Statutory Bodies shall continue. The total outlay is Rs.81 billion. Projects shall be proposed by Central Ministries/ State Government/ Statutory entities.

Opportunities in Space Sector 

Boosting private participation in space activities 

A level playing field to be provided to private companies in satellites, launches, and space-based services. Predictable policy and regulatory environment to be provided to private players. The private sector will also be allowed to use ISRO facilities and other relevant assets to improve their capacities. Future projects for planetary exploration, outer space travel, etc, to be made available to the private sector. There will be a liberal geospatial data policy for providing remote-sensing data to tech-entrepreneurs.

Opportunities in Atomic Energy

Research reactors to be set up in PPP mode for the production of medical isotopes for the affordable treatment of cancer and other diseases. Facilities under the PPP model to use irradiation technology for food preservation – to compliment agricultural reforms and assist farmers. Meanwhile, India’s startup ecosystem will be linked to the nuclear sector and for this, Technology Development-cum-Incubation Centres to be set up for fostering synergy between research facilities and tech-entrepreneurs.